An E&E Special Report

GULF SPILL

BP, DOJ on track for big-money court fight over driller's negligence

Jeremy P. Jacobs and Annie Snider, E&E reporters

Greenwire: Friday, February 22, 2013

The Department of Justice and BP PLC are scheduled to meet Monday for a high-stakes trial to determine how negligent the driller was leading up to the Deepwater Horizon spill and, consequently, how much money it will pay in civil penalties.

"The judge's ruling on whether BP is grossly negligent could produce a swing of as much as $13 billion in penalties," said David Uhlman, a University of Michigan Law School professor and former head of DOJ's environmental crimes division. "You have a trial that is of monumental import to both sides with substantial corresponding risk for both sides."

When BP and DOJ enter the Federal District Court in New Orleans on Monday, DOJ will be trying to prove that BP was "grossly negligent" under the Clean Water Act for the 2010 spill and explosion that killed 11 workers.

If DOJ succeeds, BP could be on the hook for up to $4,300 for each of the nearly 5 million barrels that spewed into the Gulf of Mexico. Without that negligent finding, BP could pay as little as $1,100 per barrel. That means penalties could range from roughly $5 billion to $17.6 billion.

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The judge, however, will have considerable discretion. So, even if gross negligence is proven, Judge Carl Barbier will consider other factors -- including money BP has already directed to Gulf restoration efforts -- before setting the maximum penalty.

Both sides are pounding their chests ahead of the trial.

BP said in a statement this week that it will "vigorously defend" itself against the gross negligence charge.

"Gross negligence is a very high bar that BP believes cannot be met in this case," BP general counsel Rupert Bondy said. "This was a tragic accident, resulting from multiple causes and involving multiple parties. We firmly believe we were not grossly negligent."

DOJ spokesman Wyn Hornbuckle countered that the department "is fully prepared to take this case to trial."

"We intend to prove that BP was grossly negligent and that the company engaged in willful misconduct in causing this disastrous oil spill," Hornbuckle added. "We remain as determined as ever to hold those responsible accountable."

Next week's trial is consolidated from many lawsuits filed by DOJ, businesses, governments and individuals. It is the first phase of two set for this year. It is unclear how long next week's proceedings will last, but a ruling and damages could be a year or more away.

BP has secured $42 billion in preparation for the penalties, according to media reports, and the effects of the spill have undoubtedly already had an impact on BP. The oil giant has changed management, shrunk in size and already paid out $14 billion on spill response and criminal penalties (E&ENews PM, Jan. 29).

The company scored a minor victory yesterday, when Barbier granted its request to exclude some documents that were evidence in BP's $4 billion criminal case last year, including the indictments of workers who have been accused of ignoring high pressure readings before the spill. Those workers, well site leaders Robert Kaluza and Donald Vidrine, have been charged with manslaughter and are awaiting trial.

Barbier didn't, however, allow BP's request to ban all evidence from the criminal proceedings and remained open to considering whether the guilty plea itself in those proceedings would be kept out of the civil trial.

BP's second trial, which will focus on how much oil was spilled, will begin in September. BP also scored a minor victory on that front earlier this week when the government agreed not to seek penalties for more than 800,000 barrels of oil that was collected before it entered the Gulf (Greenwire, Feb. 20).

The company also contends that the government's estimate of 4.9 million barrels spilled is inaccurate; the company says the spill was closer to 3.1 million barrels.

During next week's proceedings, legal observers anticipate that DOJ will make an effort to demonstrate that BP violated numerous safety standards in the run-up to the spill. Those standards are typically used when trying to determine the degree of negligence or willful misconduct.

Public pressure

Even though the stakes are high, DOJ faced enormous pressure from local groups to go to trial.

Gulf Coast leaders say their communities are still reeling not just from the oil gusher and the associated loss of tourism and oil and gas revenue under the ensuing drilling moratorium, but also from Hurricane Katrina, decades of pollution washing down the Mississippi River affecting the fishing industry, and a chronic loss of wetlands that leaves shores more vulnerable.

The dollars that flow from BP as a result of the trial or a settlement represent a once-in-a-generation opportunity for the hard-hit region. Under the Restore Act, passed by Congress last year, 80 percent of the civil penalties levied under the Clean Water Act will be sent back to the five Gulf Coast states for environmental and economic restoration.

That has ratcheted up the pressure on DOJ to win big bucks. If DOJ agreed to anything less than the maximum penalty, it would surely face harsh criticism from states, lawmakers, communities and environmental groups.

While fines under the Oil Pollution Act are intended to help bring the ecosystem back to its pre-spill condition, fines from the Clean Water Act are intended to be a deterrent and can go to larger-scale environmental restoration projects.

"BP should be feeling the impact so we don't have another spill like this one," said John Kostyack, vice president of wildlife conservation at the National Wildlife Federation, which is part of a coalition pressuring DOJ to push for the maximum penalties. "We think it is appropriate and consistent with the law to take the Clean Water Act dollars and bring them to the Gulf and make sure the Gulf is a vibrant, healthy place for communities and the nation."

Under the Restore Act, 35 percent of the funds heading to the region will be divided equally among the five affected states for ecological, economic and tourism projects; 30 percent will be managed by the Gulf Coast Ecosystem Restoration Council for ecosystem restoration; 30 percent will be divided among the states according to a formula that relates to impact; and 5 percent will go to research and monitoring.

The council, composed of state and federal officials, last month made clear that it sees a direct link between ecological health and economic vitality and will prioritize ecological projects in its planning (Greenwire, Jan. 30). It is due to release a comprehensive plan for the dollars in July.

As the trial date nears, officials have been angling for the largest pot of money and for ways to direct it to their region, but some Gulf Coast residents are looking forward to it for something more.

"We want them to go to trial -- we want the truth, the entire truth, to come out," said Cherri Foytlin, the wife of an oil worker and a mother of six, who became a staunch advocate for citizens' interests in the wake of the spill.

Foytlin and members of the Gulf Coast Fund for Community Renewal and Ecological Health, a network of grass-roots groups in the region, were in Washington, D.C., earlier this week to meet with lawmakers and Justice Department officials to urge them not to settle.

"There's almost a healing benefit to having a trial," Foytlin said.

Moreover, a veteran drilling attorney not involved in the trial, but who declined to be named, noted that the case presents a unique opportunity for DOJ to test its mettle.

DOJ, the lawyer said, is thinking, "If this isn't gross negligence, what is?"